Be Mindful of the Sunk-Cost Bias Trap

Shawn Davis, June 18th, 2014

Just the other day, I learned the term “sunk-cost bias” and immediately thought of the mortgage foreclosure work that I do. The term was new to me, but the concept was not: sunk-cost bias describes why it’s so hard for us to walk away from something and cut our losses (and explains why I spent 3 hours waiting in line for the Indiana Jones ride at Disneyland). With sunk-cost bias, our minds go through a process of telling us that we should hold on because otherwise the time, money and energy already invested would be a waste, even when such a decision is irrational and just sinks us further in the hole. The concept can have very real implications for more serious life choices, like whether or not to remain in a home once in foreclosure. A home is one of the biggest investments people make in terms of money, time and energy and as a result our homes can be a huge part of our identity and sense of security. Sunk-cost bias can result in homeowners who want to retain their property at all costs, even if that option isn’t affordable or the property is severely underwater.

The good news is that research is shedding light on ways to combat sunk-cost bias. Researchers from INSEAD and The Wharton School at the University of Pennsylvania conducted four studies on the debiasing effect of mindfulness meditation and published their findings in Psychological Science. Mindfulness meditation is simply about being attuned to the present. In one study, participants underwent mindfulness meditation training before confronting sunk cost scenarios and researchers found that “increased mindfulness reduces the tendency to allow unrecoverable prior costs to influence current decisions.” Another study demonstrated that mindfulness meditation does not need to be taught as a formal process to be effective. Participants whose survey results showed they tended to focus on the present were also less likely to succumb to irrational decisions based on sunk costs. A focus on the present reduced decision-making based on negative emotion and made it easier for participants to make rational decisions.

While my line of work is mediation, not meditation, I think that the research described above has the potential to help mediators, especially those who work with parties in conflict where sunk-cost bias is high – the foreclosure work I do comes to mind, but so does divorce mediation. Are there ways we, as mediators, can help parties focus their minds on the present and move past negative emotion? Tools such as reframing, reality testing and caucus come to mind, but I’m sure there are many others. What is your take on mindfulness, and does it have a place in mediation?